Crop Production Costs Expected To Be Lower

Costs of growing spring-planted crops this year are expected to be down from 2001, a South Dakota State University specialist said.

SDSU Extension Marketing and Management Specialist Don Peterson said costs of production for most crops are lower this year compared to last because of lower interest rates and lower energy prices.

"The Federal Reserve System lowered interest rates eleven times last year, and as of the end of the fourth quarter 2001, the average interest rates charged to farmers are around 7.75 percent for operating loans, machinery loans, and real estate loans," Peterson said. "A year ago, the average rate was about 10 percent for all three types of loans. Lower interest rates mean lower ownership costs for land and machinery and lower interest payments."

Peterson said two reasons for this year's lower energy costs are lower crude oil prices and a slower economy. Lower energy prices translate into lower operating costs for machinery, namely lower gasoline and diesel costs. But lower energy costs make their biggest difference in the prices for fertilizer, especially nitrogen. Currently, anhydrous ammonia prices are about $280 per ton, down about $50 compared to a year ago. Urea is down nearly $70 at $175 per ton and DAP is down about $30 at $215 per ton.

"Seed costs are mixed and in some cases not very comparable to 2001 due to lower market prices for home grown seeds and changing technology," Peterson said. "Chemical costs are unchanged from last year's budgets. The new price list published by the SDSU Plant Science was not available at the time the budgets were calculated. I expect that the net effect is mixed, with some chemical costs higher and others lower."

Machinery ownership and operating costs are mostly lower due to lower interest rates and fuel prices. Partially offsetting these reduced costs are higher repair costs and higher purchase prices for most new equipment. Machine rental rates are higher and custom rates are generally higher.

Land costs are mixed. "In some areas, land rental rates actually declined, but in most counties, they are higher this spring. The lower rates occur mostly in the western end of the state while the biggest increases are in the eastern end," Peterson said. "In some counties, rental rates increased enough to consume the entire decline in operating costs. However, in most counties, the total costs of production are actually lower from what they were a year ago."

Peterson noted that fuel costs have been increasing rapidly in the past two weeks, for several reasons. Crude oil prices are rising in response to OPEC's efforts to cut production. The economy is recovering from a recession, increasing demand. Some refineries have shut down or are on reduced production schedules to conduct preventive maintenance and/or reformulate gasoline to meet summer emission standards.

"Whether the prices for fuel have peaked or not remains to be seen, but prices usually increase just before Memorial Day," Peterson said. "It may be wise to contract at least some of this year's fuel needs at current prices."